Requirements: 1. Calculate the stock price of Flueger Systems under the comparable company approach, assuming that all three Relative Value 2. Mensures i.c. (EPS, Book Value and Sales) carry equal weights in the final stock price determination. Estimate the mean takeover premium (in percentage form) on the basis of historical data related to recent M& A transactions. Calculate the estimated takeover price (including premium) for Flueger on the basis of previously calculated value of its stock and the mean takeover premium. 4. Finally calculate the fair acquisition price for Flueger System using the comparable transaction approach and corroborate your previously estimated takeover price. O. 02: Explain the following terms in no more than twenty words Bootstrapping Earnings DMA, LBO, Bear Hug, Poison Put, Organic Growth, Crown Jewel Defense, White Knight Defense, Flip over pill, Greenmail, O. 03: Draw the complete pictorial analogy of Tomato Garden with the conditions and decisions rules for each of the six segments. For the cases given below, calculate NPV and NPVq and pick ONE most suitable segment out of six for them. Don't forget to mention the values of NPV and NPVq in the selected segment of Tomato Garden for each of the case given below. A. The current value of the underlying asset is PKR 1500 million with a standard deviation of 30 percent. The cost of undertaking the project that would be paid after 3 years, is PKR 1600 million and the risk free rate is 7 percent annually. B. The current value of the underlying asset is PKR 1800 million with a standard deviation of 0 percent. The cost of undertaking C. the project that would be paid after 3 years, is PKR 1600 million and the risk free rate is 7 percent annually, The current value of the underlying asset is PKR 1800 million with a standard deviation of 10 percent. The cost of undertaking the project that would be paid after 6 months, is PKR 1600 million and the risk free rate is 7 percent annually. D. The current value of the underlying asset is PKR 1530 million with a standard deviation of 5 percent. The cost of undertaking the project that would be paid after 6 months, is PKR 1600 million and the risk free rate is 7 percent annually. O. 04: Glarir Foods and Karmaler's Grocery are negotiating a friendly acquisition of Kazmater's by Glan Foods. The management teams at both campanini have tentatively agreed upon a transaction value of about $27 per share for Kazmaier's stock, but are presently negotiating alternative methods of payment Jennifer Nagy, CFA, works for Kozlowski Ine, the investment banking firm representing Giant Foods Nagy has compiled the data in the following figure to analyse the transaction Merger Evaluation Inputs Giver Foods Kammaire's Grocery Pre-merger stock price $24 Number of shares outstanding (millions] 50 24 Pre-munger market value (milliner) $1.600 $576 Examazed NPV of cost reduction spurrier $120 million Case I: Cash offer of $27 per share for Karmaler's stock. Case 2 Stock offer of 0.75 shares of Giant Foods stock per share of Kaumalen Requirements: For each case mentioned above, calculate the following items Post Merger Value of the combined firm Gains accrued to the target d. Post Merger Stock Price of the combined b. firm C. Gains accrued to the acquirer Q. 05: DG Khan Cement's most recent FOFF is PKR 5,000,000, DGK's target debt to equity ratio is 0.25. The market value of the firm's debt is PKR 10,000,090 and DG has 2,000,000 shares of common stock outstanding. The firm's tax rate is 40%%, the shareholders require a return of16%% on their investments, the firms before tax cost of debt is 8%%, and the expected long term growth rate in FOFF is 39%. Calculate the value of the firm and the value per share of the equity. Instructor: Dr. Kumail Rizvi Page 2Lahore School of Economics, Final Term Examination MBA II Section B, Winter 2017, Advanced Corporate Finance December 12, 2017 Max Time 150 Mins O. 01: Gretsch Industries is considering acquiring Flueger Systems. Although Flueger has said it is not for sale, Greuch is considering a hostile takeover by making a tender offer directly to Flueger's shareholders, Meghan Doyle, a financial analyst with Greuch, has been assigned the task of emimating a fair acquisition price for the tender offer. Doyle plans to use three different valuation methods to estimate the acquisition price and has collected the necemary financial data for this purpose. Flueger Systems has 20 million shares outstanding. Doyle has estimated that at the end of each of the next four years, Flueger will have free cash flow to equity (FCFE) (in millions) of $24,$27, $32, and $36. After the fourth year, Doyle expects Flueger's FFE to grow at a constant rate of Gob peryear. She also determines that Flueger's cost of equity of 10.5% in the appropriate discount rate to use for the analysis. Doyle has also found three companies that are in the same industry as Flueger and have a similar capital structure-Behar Corporation, Walters Inc., and Hamelbeck Dynamics, In addition, Doyle has identified data for three takeover transactions with characteristics similar to Flueger-Bullseye, Dart Industries, and Arrow Corp, Data for both sets of firms are shown in the following figure. Company Startinter Betier Haurlbeck Sperm Dyn ander Current mock price $32.0 $54,00 $36.50 $108 20 Earnings per share (EPS) ($) 1.75 210 6.50 Book value per share ($) 9.75 17.25 12.10 35.75 Sales per share ($) 29.75 52.75 37 80 105.00 Company Stating Dert Indautrans Arrow Corp. Stock price pre-takeover $18.25 $27.80 $43.00 Acqubition wock price $22.00 $35.00 $57.00 Earnings per share (EPS) ($) 0.95 1.65 2.50 Book value per share ($) 6.10 9.85 14.20 Sales per thate ($) 17-60 26.75 30.73 Lily Tyler, the CEO of Flueger Systems, was not happy when she heard the rumor that Greusch Industries may try to take over Flueger in a hostile takeover. Tyler asked two of her executive vice presidents for suggestions on what her firm could do. Jordan Collier said, "If the Gretsch does make a hoarile takeover offer, we could implement a fair price amendment to make sure a fair price is offered to our shareholders. Another EVP, Kyle Baldwin stated, "One option is to use a white knight defense and sell a minority stake to a third party that could help block Gretsch from making a deal." Instructor: Dr. Kumail Rizvi Page 1